The possible conversion a €3.5bn State bailout loan into ordinary shares in AIB is one option under discussion as part of a move to overhaul the bank's capital structure ahead of a possible share sale.

Talks are under way between the Government and AIB on an appropriate capital structure for the bank.

The talks are focused on options in relation to the €3.5bn of so-called preference shares, a type of loan, including possibly converting some or all of the debt into bank shares, AIB chairman Richard Pym said.

Speaking at the bank's annual general meeting at its headquarters in Ballsbridge in Dublin, he said talks are also focused on €1.6bn of contingent capital notes, a separate debt owed to taxpayers, and consolidation of the bank's massive half a trillion of existing shares.

The AIB chairman, who joined the nationalised bank late last year, was tight-lipped on the timing of any deal.

"All discussions on our potential IPO are with the Department of Finance, we will be ready when the Government decides, if they do, to relist the shares," Mr Pym told reporters following the formal public meeting.

The sale of more that €500m of shares in Permanent TSB this week has put renewed focused on the expected sale of an initial stake in the much larger AIB, which has been expected later this year.

The State's more than 99pc stake in the bank ensured that all resolutions put before shareholders to be voted on were carried yesterday - including a ballot to support directors' fees.

The fees issue led to angry exchanges between Independent TD Shane Ross and Richard Pym, who joined the bank last year.

Mr Pym took exception in particular to language used by Deputy Ross, who noted that the new chairman's €365,000 fees are a third higher than his predecessor's.

"You did accuse me of milking the bank. I didn't set my own fee. I was offered the job. I'm not here for the money and there are many things that I could do that would make more money," he said.

"I find your accusation offensive and I would ask that you might reconsider it," the British banker added.

Mr Pym said the bank is still considering a cut in the interest rate charged on standard variable rate home loans, though gave no further insight into when that could happen.

In relation to mortgages arrears Mr Pym told shareholders that AIB's preferred option is to arrive at deals that allow people to remain in their home.

"AIB loses money on repossessions," he noted.

The rate of arrears on AIB's book of Irish home loans declined 22pc last year, he said.

However, he said the bank cannot spend shareholder and taxpayers' money where customers won't co-operate.